Tracer DAO: The Future of Derivatives!
Authored by Ryan Sean Adams and David Hoffman from Bankless
David and I (RSA) decided to join Tracer as long-term Advisors last September and have been working with the team since then. We believe Tracer represents the future of derivatives. Not just derivatives for DeFi. Derivatives for everything.
This is why.
Crypto is chaotic. Things change all the time, sometimes violently so! Even Bitcoin, the industry’s largest and most liquid asset, is prone to rapid 10% moves, and the magnitude of this volatility increases as you move down the risk curve of crypto assets.
Volatility is necessary to make crypto-systems adaptive and anti-fragile, but it also makes life difficult for those who are seeking long-term stability. The metaverse won’t be ready for the masses until every asset and every participant has access to stability.
Stability is how we onboard the world to the Metaverse.
We also can’t forget about the physical world. While our financial primitives can make crypto more stable, the ‘real’ world is becoming more chaotic. Silicon Valley tech companies swinging elections. Climate change uprooting populations. Experimental monetary policies. Political instability. Employment uncertainty.
The world needs stability more than ever.
What if crypto can export stability to the real world?
Financial products like derivatives have helped humanity achieve stability for centuries. Futures and options contracts let traders hedge their risk to commodities markets everywhere and encourage businesses to think long term. But the coverage of these derivatives hasn’t reached the long-tail of assets–yet.
Risk management has been the luxury of the few.
We can bring it to the many.
With DeFi, we can collapse the cost of financial contracts. Access to derivatives can be easy, cheap, and plentiful even for the long-tail of assets both inside the metaverse and in real life. This means free markets and low cost risk management products for all.
This is Tracer’s vision of the future.
Wherever there is demand for stability, Tracer is there.
What is Tracer?
Tracer is a meta-protocol for derivatives. It gives unhindered access to financial derivatives by making them deployable as new tokens.
Go 3x Long on BTC by minting a token.
Go 3x Short on the EUR by minting a token.
Using Tracer’s factory contracts, any price or data feed can be turned into an option, swap, or future product. Plug in the oracle → generate a derivative.
Tracer is permissionless
To illustrate: Rari is a superset of Compound. Compound has only one instance of its borrowing & lending application, and services just 7 assets for approved collateral. Rari, on the other hand, allows for the permissionless deployment of ‘fuse pools’. Fuse pools are also lending markets, but the deployer of a pool can input any parameters for the supplied & borrowed assets and interest rates. You could reconstruct Compound’s lending market using a Rari Fuse pool and it’d be one of the infinite parameter sets that are possible.
The Uniswap of derivatives
One of Uniswap’s keys to success was enabling the long-tail of assets to access immediate, day-1 liquidity. Where previously, tokens needed to be approved by centralized exchange operators, Uniswap’s factory contracts enabled anyone to exchange any token.
Tracer incorporates a similar design pattern as described above. Where Rari is a superset of Compound, Tracer uses factory contracts to become a superset of any derivative contract. You could build a perpetual swaps exchange like dYdX on Tracer. You could build an options protocol like Opyn on Tracer.
Factory contracts offer permissionless deployment for perpetual markets of any asset. If there is any demand for a derivatives market, it will be created using Tracer.
Democratized stability — that is what DeFi has unlocked for the world. Open and free financial markets for any asset, built by any user. As the number of assets in the metaverse goes from thousands to millions, to billions, removing all gatekeeping on the deployment of new markets becomes crucial. This is how finance scales to meet the demands of the metaverse.
All this is made possible by factory contracts. Let’s discuss those next.
Factory contract magic
Factory contracts are the primary product of Tracer. They contain standardized templates for derivatives markets. A user can input custom parameters for their market and deploy it on-chain straight from the factory.
As with Uniswap’s factory contracts, Tracer’s contracts are permissionless and are why anyone can spin up any market around any asset. Rather than governing over which individual markets should be approved, Tracer governs over which factory contracts to approve. Changes to existing factory contracts, or adding new ones, is governed by Tracer DAO, to ensure the maximum security and quality of the market templates people can deploy from.
What about oracle security?
Even though Tracer makes it possible to create a market for any oracle supplied data feed, those contracts may not be safe. It’s previously been difficult to review oracle performance and security, so price manipulation has caused big problems for DeFi.
Tracer’s integration with Reputation DAO allows users to inspect and validate the data security for every contract they use. Participants can “view source” on the data used by the market they are in with the Reputation.link widget.
Tracer has also introduced its first killer app which is about to be enhanced with the launch of Tracer v2.
Perpetual Pools are the first killer app!
Tracer is the first DeFi protocol to introduce tokenized Perpetual Pools. Perpetual Pools are a simple way to generate leveraged ERC20’s–these are leveraged tokens that don’t expire and can’t be liquidated.
Add a 3x long ETH token to your wallet…and hold.
Tokenization means a leveraged position can be used as a money lego in DeFi. This gives perpetual pool users more freedom and optionality with their capital, and also empowers other builders to create products on top of tokenized perpetual pools.
More on Tracer’s Perpetual Pools here.
Upcoming Tracer Products
- Perp Swaps — on-chain swaps market with permissionless deployment of new markets.
- Options — on-chain options market to remove downside risk for digital assets. Locking up an in-game asset to fight an epic weeks long battle; manage downside price risks to continue to have a good time
- Interest Rates Swaps — lock in interest rates across lending protocols to become even more bankless.
- Futures — cash and physically deliverable markets for producers to manage risk of on-chain and off-chain assets.
- Structured Products — earn yield by executing professional trading strategies through easy to access vaults.
How might people use Tracer?
Add utility to your tokens
Are you holding a bag of governance tokens and looking to add utility to your holdings? Use your ERC20’s to take a position on the performance of any other token, or even non-crypto assets.
Bet on Cryptopunks without buying one
Want a cryptopunk, but can’t afford one? Lock in your savings to a market that tracks the value of cryptopunks overtime so cryptopunk value doesn’t run away from you.
These are just a few ways people will use Tracer. We expect the most interesting ways Tracer will be used in the future haven’t yet been imagined.
Derisk gas prices
Oracle Networks (like Chainlink) providing data feeds to smart contracts require ETH to pay gas fees to facilitate the DeFi economy. Hedge gas price risk with Tracer.
Go long like an ETH Maxi
Do you believe that Ethereum will maintain dominance and alt L1’s won’t survive the modular blockchain thesis? If you want to hold a long term leveraged exposure with no liquidation risk to maximize your ETH Maxi views, Tracer is there.
Hedge Real Estate markets
Tokenized real estate is not going to be a thing for a really long time. It’s far easier to create synthetic markets using price oracles to go:
- Long Manhattan, short Brooklyn.
- Long 2 bedroom apartments, short studios.
- Long west coast, short east coast.
Metaverse taxi medallions
Did you spend years saving up enough money to buy a super powerful in-game item, that now generates revenue for yourself in the metaverse? With Tracer, you could hedge your risk of that item losing value over time. Let your in-game asset be productive, while ensuring the time it took to get the item isn’t wasted by the asset losing value.
How big is the opportunity?
Absolutely massive. The derivatives market is estimated at over $1 quadrillion. Some analysts suggest it is at least 10 times the size of global GDP.
This will migrate to DeFi in time.
But first DeFi will capture the fast growing Metaverse derivatives market.
Metaverse potential is so huge that preliminary estimates are being given by some of the largest players in traditional finance. Morgan Stanley and Goldman Sachs forecast a 10–15% expansion in digital TAM as the metaverse develops over the next 20 years, pinning the metaverse opportunity in the realm of $8 trillion. We expect derivatives assets to be valued at least 10 times the size of total metaverse assets.
The metaverse will produce a Cambrian explosion of assets upon the world, and many of them will need to access stability products and services in order to be desirable to a larger portion of the population. Via TracerDAO’s factory contracts, Tracer is capable of making the metaverse an easier place to navigate and settle on.
Stabilize the Metaverse, stabilize the world!
Tracer’s mission is to provide robust and safe financial contracts to all of the world’s commodities.
Wherever there is a demand for stability, Tracer is there.
The metaverse is going to bring about a Cambrian explosion in the number of market-relevant commodities. Not only that, but the commodities that emerge from the metaverse are likely going to be orders of magnitude more chaotic than the commodities found in real-world markets.
The metaverse is the perfect proving-ground for Tracer to sharpen and harden its contracts. The extreme volatility of many low liquidity digital assets is the perfect stress-test needed to create robust markets for commodities of global real-world significance.
First, Tracer stabilizes the metaverse.
Then the world.
All aboard the Tracer rocket. 🚀
RSA and David
Original article here
For more information about Tracer DAO visit:
Perpetual Pools V2 Panel: Episode coming soon!